Shift4 Payments, Inc.

Good day and thank you for standing by. Welcome to the Shift for Payments first quarter 2021 earnings conference call. At this time, all participants are in a listen-only mode. After the speaker's presentation, there will be a question and answer session. To ask a question during the session, you will need to press part one on your telephone. Please be advised that today's conference being recorded, if you require any further resistance, please press star zero. I would now like to hand the conference over to your speaker today, Sloan Bolin, Investor Relations. Please go ahead.

Thank you. I'd like to welcome everyone to Shift4's earnings conference call for the three months ended March 31st, 2021. Before we begin, I'd like to remind everyone that this call will contain forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. All statements made on this call that do not relate to matters of historical fact should be considered forward-looking statements, including statements regarding management's plans, strategies, goals, and objectives, the expected impact of COVID-19 on our business and industry, including that with respect to the economic recovery, increases in vaccination rates and the reopening of the country, and any volume recovery by us, gateway penetration, and spend seen by our gateway merchants. expectations regarding new customers acquisitions or other transactions and anticipated financial performance including our financial outlook for the year ended december 31st 2021 these statements are neither promises nor guarantees but involve known and unknown risks uncertainties and other important factors that may cause our actual results performance or achievements to be materially different from any future results Performance or achievements expressed or implied by the forward-looking statements, factors discussed in the risk factors section of our annual report on Form 10-K for the year ended December 31, 2020, as updated by our quarterly report on Form 10-Q for the three months ended March 31, 2021, and our other filings with the Securities and Exchange Commission could cause actual results to differ materially from those indicated by the forward-looking statements made on this call. Any such forward-looking statements represent management's estimates as of the date of this call. While we may elect to update such forward-looking statements at some point in the future, we disclaim any obligation to do so, even if subsequent events caused our views to change. In addition, we may also reference certain non-GAAP measures on this call, which are reconciled to the nearest GAAP measure in the company's earnings release, which can be found on our investor relations website at investors.shiftforward.com. And with that, let me turn the call to our Chief Executive Officer, Jared Isaacman.

Thank you, Sloan. Good morning, and thank you all for joining us. If you recall from our last quarterly earnings update in early March, we were beginning to see signs of strong volume recovery across much of our merchant base. I'm happy to share with you all this morning that these volume trends exhibited during late February continued through March, resulting in a reasonably strong first quarter. Just to reiterate, at Shift4, we are an integrated payments company that focuses on some of the most demanding and complex environments in commerce. This includes a lot of larger restaurants, hotels, and hospitality merchants, as well as specialty retailers and sports and entertainment venues. We saw some nice year-over-year volume growth in Q1, but the majority of our growth throughout this pandemic has been as a result of new and larger merchants joining our platform. While our performance has been strong, most of our customers are, in fact, still operating below pre-pandemic levels, which is important on two accounts. One, our value proposition has fueled year-over-year revenue growth for 21 consecutive years has proven to be compelling in the best and worst of economic times. Two, as the country continues to reopen, we expect considerable volume recovery from our existing customers as well as from all the merchants joining our platform every single day. With that stated, let me provide a brief overview of our first quarter performance. First, we reported another record quarter of N10 payment volume totaling nearly $8 billion, which is up approximately 30% over the same period last year. As I mentioned in my shareholder letter, we actually had some tough comps as January and February of 2020 were up over 50% year-over-year compared to 2019 levels. The volume growth was not isolated to this past quarter. April has also seen impressive sequential growth, as Taylor will talk about in just a bit. We don't generally focus on our gateway-only volumes on this call, but it's also a very encouraging indicator that our annualized March gateway volumes totaled $150 billion, which is moving closer to our pre-COVID-19 2019 volumes. Put more plainly, our gateway merchants are seeing a rapid recovery in spend already this year, in spite of colder weather in much of the Northeast and COVID-19-related occupancy restrictions. I mention this also to address frequent questions from our investors as to how much of our gateway-only volume remains, considering it's one of the easiest growth opportunities to quantify inside of the shift-force story. While we've exceeded early expectations on gateway penetration, there's still a long way to go, clearly. Volume growth drove record revenue of $240 million and gross revenues less network fees of $97.5 million, which is up 23% compared to just a year ago. What many may not know about our business is that in addition to typically being the lowest volume quarter for us on a seasonal basis, Q1 is also typically the lowest on a net spread basis, which Brad will talk about more later. Said plainly, we're very encouraged by how Q1 sets us up for the remainder of the year. Our adjusted EBITDA of $22.2 million was up modestly year over year, but also included $7 million of accelerated expense and a one-time charge, which Brad will expand upon. As I mentioned in my shareholder letter, I do think it's important to explain why we didn't see more flow through to adjusted EBITDA. And it's really attributed to two factors. First, our first and only notable COVID-19 related business closer, which was a approximately $5 million risk loss attributed to the business failure of a specialty retailer. This is the only notable risk loss in my 21 year history with the company. And while we do expect some recovery, we have chosen to expense all charges at this time. Second, we are continuing to make investments in talent and systems to ensure the scalability and experience for our merchants, partners, and employees. As a company, we have performed well during some of the best and most difficult times imaginable for our customers, partners, and employees. As we look at Q1 performance and the end-to-end volume contribution from April, we are very encouraged and excited about the year ahead. We see significant runway both from the recovery of the economy as vaccination rates increase as well as new market share gains as our value proposition continues to resonate and win. As many of you know, Shift4 is a company that has a hard time sitting still, so I'd also like to give a few updates on some strategic initiatives that continue to accelerate our growth. In October of last year, we made a relatively small investment to acquire a professional services company that specializes in supporting some of the most recognizable merchants in the hospitality industry. Our objective was to use this world-class team to further enable our capabilities and to allow our sophomore partners to lean on us more while engaging the largest and most sophisticated hospitality merchants. Since that acquisition, we've seen a 50% increase in end-to-end merchant production from these market segments. You may have seen our announcements regarding Petco Park in San Diego or my personal favorite, Junior's Cheesecake. These are just two examples of the accelerated growth this capability has afforded us in a market in which we were already performing reasonably well. Our e-commerce platform, Shift4Shop, is also off to a very promising start. Since our acquisition in November of 2020, we worked very quickly to deploy enhancements, implement a disruptive go-to-market pricing model, and launch a promotional campaign to help shine a spotlight on this great platform. You will find in our shareholder letter that the traction generated by these efforts has exceeded our initial forecast. To date, we've added 21,000 incremental web stores, which more than doubles the footprint of the business. As a reminder, doubling the customer count of Ship4Shop was our first-year objective, and it was surpassed in less than six months. I also want to emphasize that the Ship4Shop acquisition has given us good reason to explore and invest in technology like capital offerings, buy-now-pay-later programs, cryptocurrency acceptance, crypto settlement that would have really been a stretch for us to incorporate in our historic base of customers. While it has only been two months since we announced our most recent acquisition of Venue Next, we are already finding early success. Entertainment venues and theme parks across the country are eagerly seeking to enable a fan-first technology, contactless payment method, and adjust workflows for a more mobile-centric experience. As you may have seen in our shareholder letter, we're proud to count the Washington Nationals as a new customer. Based on our visibility into the pipeline, we expect there to be many more. Lastly, I want to comment on the M&A environment. Shift4 is a proven track record of identifying scarce assets that are complementary to our integrated payment strategy and build upon our ambitions to provide a unified global commerce experience for our partners and customers. As evidenced by the acquisitions we just mentioned, acquiring these assets can often lead to accelerated growth and valuable diversification. We view the current landscape as ripe for numerous transactions, ranging from strategic tuck-ins to large-scale transformational deals. We are dedicating more resources towards these opportunities while at the same time remaining disciplined with regard to valuations. And with that, I will turn it over to Taylor Lauber to comment on some of our quarterly trends and other strategic updates. Thanks, Jared, and good morning to everyone. As Jared mentioned, this was quite a strong quarter for us. Eight billion in volume not only represents a record, but it's almost a billion dollars higher than our previous record quarter for volume. To provide some context on why that's so exciting, the first six weeks of the quarter were actually quite suppressed. Additionally, we exited March with roughly 9% more active merchants than in December of 2020. Because this is our first Q1 as a public company, I think it's worth setting the stage a bit for how Q1 would influence a typical year for us. Prior to COVID-19, we would expect Q1 to be our weakest quarter on both the volume and net spread basis. The holiday season hangover, as we like to call it, often results in reduced consumer spending across a less favorable mix of merchants and card types. In a normalized environment, we'd expect roughly 20% of our annual volume to occur in Q1. As the weather warms across the country, travel and consumer spending typically increases significantly in Q2 and Q3, which are historically our strongest quarters. We would characterize the most recent quarter as exhibiting typical seasonal trends, but still significantly impacted by COVID-19. As you can imagine, we are very optimistic about the exit rates experienced in Q1 and how this positions us for the remainder of the year. Our April end-to-end volume continued this growth trend. It was the highest month in our history and 4% above our very strong March. While there are some seasonal factors that can influence volume week to week, we've seen a consistent sequential increase in volume and active merchant counts. For example, last week we saw end-to-end volume of $830 million and active merchant counts 2.5% higher than the last week in March. The expansion of our total addressable market has also fueled an expansion in our pipeline of desirable M&A transactions. We've made the decision to launch Shiftboard Ventures as a means of capitalizing on earlier stage opportunities we've been seeing. While we did not expect this to be a significant portion of our balance sheet, we do believe that these partnerships will involve both capital and collaboration. We are specifically pursuing investments where we can have a role in helping drive growth of the business through our technology and customers. In April, we've invested in Sightline Payments, which is a unique digital commerce platform for casino resort operators. Jared mentioned the traction we're seeing with three recent acquisitions. I think it's important to note that while these wins are encouraging, they don't influence our decision on revenue guidance, which Brad will touch on in a moment. I think that's worth repeating. While we do include the increased operational expense from acquisitions, we do not include the revenue synergies until they are realized and more predictably modeled. We will provide regular updates on these new merchant cohorts as they mature, and we look forward to doing that. And with that, I'll turn it over to Brad.